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Asymmetric volatility in cryptocurrency markets: New evidence from smooth transition GARCH models

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  • Cheikh, Nidhaleddine Ben
  • Zaied, Younes Ben
  • Chevallier, Julien

Abstract

This paper investigates the presence of asymmetric volatility dynamics in Bitcoin, Ethereum, Ripple, and Litecoin. Asymmetric effects between good and bad news are traditionally modeled using threshold GARCH models that allow only for two possible variance regimes. We experiment a slightly flexible specification for the conditional variance by using a Smooth Transition GARCH (ST-GARCH) model, where a continuum of intermediate states is allowed between the two extreme volatility regimes. We feature an inverted asymmetric reaction for the majority of cryptocurrencies. The presence of positive return-volatility relationship, which is different from other traditional assets, supports the safe-haven hypothesis in cryptocurrencies.

Suggested Citation

  • Cheikh, Nidhaleddine Ben & Zaied, Younes Ben & Chevallier, Julien, 2020. "Asymmetric volatility in cryptocurrency markets: New evidence from smooth transition GARCH models," Finance Research Letters, Elsevier, vol. 35(C).
    • Handle: RePEc:eee:finlet:v:35:y:2020:i:c:s154461231930162x
    DOI: 10.1016/j.frl.2019.09.008
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    References listed on IDEAS

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    More about this item

    Keywords

    Cryptocurrencies; Asymmetric volatility; Smooth transition GARCH;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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